Moody's Investors Service has downgraded Coinbase's corporate family rating to B2, from Ba3, and its senior unsecured secured notes to B1, from Ba2. Coinbase's outlook has been changed to stable since its rating review. This action concludes the review for the rating downgrade that began on November 21, 2022.
This rating reflects Coinbase's significantly weakened cash flow and revenue generation capacity, due to challenging conditions in the crypto asset trading environment characterized by sharp declines in crypto asset prices and lower crypto trading activity. This indicates that there is a higher risk of defaults on the bonds issued by the company.
Coinbase bets on layoffs
The agency also notes the growing uncertainty around developments in the regulatory environment for crypto assets, especially after the fall of FTX Trading Ltd. and its affiliated entities. Moody's expects Coinbase's profitability to remain challenging, despite recently announcing a reduction in its global headcount.
The crypto sector is facing reductions in its workforce across the board due to harsh market conditions. In order to stay afloat, many projects have chosen to optimize their resources through massive layoffs. Among them is Coinbase, which announced its forecasts for additional layoffs, having already laid off 1,260 employees in 2022.
Brian Armstrong's exchange announced a series of strategic changes to address the current harsh market conditions, including a restructuring of the company's priorities to focus on the products and services most critical to its growth.
It's time to restructure
Moody's decision means that the assessment of Coinbase's ability to meet its financial obligations related to those bonds has been lowered. This may make it more difficult for the exchange to obtain financing in the future, as investors and lenders may consider that the risk of investing in the company has increased.
This news could also cause existing investors to see a reduction in the value of their investments and consequently increase the financing costs for the company. Despite these difficult changes, Coinbase remains one of the leading cryptocurrency exchanges in the world and, for now, is expected to continue to be an industry leader as the future progresses.